Downturn in oil puts a crimp in big Alberta plans
| Calgary, Alberta
There was no intention to emulate the dinosaur that roamed what is now western Canada eons ago and whose bones now turn up all over southern Alberta. But an analogy with northern Alberta's two giant oil sands plants, which some say are also destined for extinction, could hardly be more appropriate.
Both are approaching extinction as world oil prices continue to fall and the production cost of the honey-colored synthetic fuel escalates. High taxes, prolonged downtime brought on by recurring technical and labor difficulties, and seven months of minus-30 degree C. temperatures are contributing to their demise.
A third such plant, the Alsands project, with a capacity of 130,000 barrels a day and a staggering price tag of $13 billion (Can.), is also in trouble.
Now, Alberta Premier Peter Lougheed wants the private sector to think small again to replace the megaprojects that seldom produced, if they were completed at all, what was expected of them. He favors a larger number of smaller enterprises of a predictable nature and manageable size.
No guidelines have been issued yet, but unconventional oil recovery projects of around 50,000 barrels a day might be more acceptable. It would mean that Canada's fabled cornucopia of energy resources, and Alberta in particular, will have to get used to functioning in reduced circumstances.
As an additional help, this month the Alberta government is expected to breathe new life into the ailing economy through tax concessions to the petroleum industry and by using the province's $14 billion ''heritage fund'' savings account to bankroll small business.
Hamstrung by high interest rates, the private sector could also use loans with easier terms in preparation for an upturn in Canada's economic fortunes.
The move to smaller-scale energy development means that there may never be another of those intimidating monstrosities fed by skyscraper-size bucketwheels chewing into the rock-hard bitumen. As they dug, these machines left behind moonlike craters and pyramids of residual silicon. Still, the low-grade hydrocarbons trapped under the muskeg in plentiful but hard-to-get volumes can't be overlooked, either.
Spurred by the availability of cheap and relatively plentiful energy, including coal, Alberta in the 1970s became a stomping ground of brash promoters who built larger-than-life industrial edifices scattered around a pristine, majestic countryside.
Faced with a steadily declining conventional crude oil inventory, the government is looking to the inert oil sands and somewhat less viscous heavy oil. Estimates of its reserves are often placed several times higher than the more readily available liquid wealth of Saudi Arabia, making it a potential mother lode of continued prosperity.
Today, however, many of the plans have been scrapped; others work only at reduced levels.
Other ambitious enterprises were also supposed to have taken root here, such as high-technology firms and job-creating manufacturing and processing industries. But these failed to get started at all.
Meanwhile, western Canada's coal mines may also become victims of sinking world oil prices as their markets in the Pacific rim countries are eroded by the oil glut.
Rio Algom and Marathon Oil Company had planned to invest some $200 million in a new coal mine in British Columbia's extreme southeastern corner at Sage Creek. Over a 25-year period, they would have blasted away at what is essentially a mountain of high-quality steam coal. Those plans have also been scrapped.
Their Japanese and South Korean customers found it was cheaper to stay with oil and delay costly conversion of their electricity generating stations to coal.
The 1 million-ton-a-year Sage Creek facility, scheduled to be in operation by 1985, now will be put off unless there is a dramatic turnaround in the world oil trade by summer.
Other western Canadian mines are also feeling the pinch. Their Oriental customers, who in a good year buy as much as 12 million tons of metallurgical coal from Alberta and British Columbia, are cutting deliveries and show no enthusiasm to renegotiate contracts, especially if this involves higher prices. Coal industry profits are slumping along with output, and several mines are up for sale.
But the demand for slightly used coal mines in western Canada is about as buoyant as the residential home market here in Calgary. The Sage Creek prospect is especially gloomy because its sales would have represented the first large-volume transaction with overseas buyers.